LME Metals Ease In Asia Amid Consolidation

SINGAPORE--Base metals on the London Metal Exchange eased slightly Wednesday in Asia as the complex continues to consolidate after last week's sharp gains, analysts and traders said Wednesday.

Analysts said consolidation this week will establish a base for the complex to target fresh highs, though the absence of strong buying interest from Chinese consumers may weigh on the upside.

Three-month copper was trading at $8,140 a metric ton at 0615 GMT, down $14 from the London Tuesday afternoon kerb. Aluminum lost $5 to $2,888/ton and zinc dropped $5 to $4,110/ton.

Copper opened higher in Asia but later gave up its gains in thin trade. The failure of Shanghai Futures Exchange copper to rally sharply Wednesday may have damped sentiment amongst some, traders said.

"Theoretically Shanghai should be limit-up today but it's not," said a trader at an international trading house in Shanghai. "Basically the physical market in China is very poor."

Physical traders in China said the market is still depressed by the large volume of copper imported in the first quarter. The scrap copper and copper concentrate markets are both softer as well, and may further reduce China's need to import more copper, said a Shanghai-based analyst at a large Chinese metals trader.

While copper technically looks strong and stocks at the LME continue to decline, expectations that aggressive buying from Asia and especially China would appear upon their return to the market this week may not pan out, traders said.

"Due to the rather weak buying interest from China, maybe there will be more selling pressure on the LME," said a trader in Tokyo with a large commodity brokerage.

The Shanghai-based analyst said the Chinese government's rising concerns about the country's surging stock market may also be a bearish influence on the base metal market.

"The government is worried about the (Chinese) stock market and there may be some macro tightening measures," said the Shanghai-based analyst. "If the government is seen as willing to tighten, then the market sentiment will be affected."

However, Man Financial analyst Edward Meir in a daily report said the market's correction may already be past and the complex could begin strengthening again.

The U.S. Federal Open Market Committee meeting Wednesday may provide a trigger for copper, as the central bank is likely to soften its stance on interest rates, which should pressure the dollar, Meir said.

"This would be constructive for copper, which...has been correlating nicely with the stronger euro of late."

Aluminum dipped slightly in Asia in thin trade. A technical analysis report by Barclay's Capital said copper appears to be breaking out of its recent range by having risen above $2,850/ton. "Consolidation above $2,850 would imply a run at $2,932 and probably $3,007 in coming weeks."

Zinc and nickel both eased in Asia, but Standard Bank said the outlook for both remained unchanged, with possible rallies to $4,580 and $54,000 respectively in the short term.

Tin bucked the trend and was $250 higher at $14,500/ton in thin trade, while lead was untraded in Asia. It was last quoted at $2,095/ton, up $5 from the London kerb.